Texas businesses feel terrible about the economy

• Many Texas manufacturing businesses are struggling amid economic uncertainty.
• Some cite supply chain issues and global conflicts as hinderances to their growth.
• The Dallas Fed found a mixed bag for manufacturers, with slower employment growth and fewer orders.

Many Texas manufacturing businesses are not happy about how the economy is doing.

Despite growth in Texas factory activity in October, as well as other positive economic indicators, perceptions of broader business conditions are still falling, according to the most recent Texas Manufacturing Outlook Survey from the Federal Reserve Bank of Dallas. The survey of 94 Texas manufacturers detailed how many Texas manufacturing firms are struggling.

Still, the survey's production index, which measures Texas' manufacturing conditions, improved in October, despite a decline in the new orders index. Input cost pressure fell in October for both labor and materials. Additionally, the future production index increased, suggesting many businesses are expecting manufacturing activity to improve. The employment index fell slightly but is still positive, suggesting many businesses are still hiring more than they're laying off workers.

Comments included in the report showed that across manufacturing, businesses are unsure about how to prepare for the future. Many businesses reported hiring fewer employees with shorter workweeks in October.

"Oh, how we long for the days of a stable market," one machinery manufacturer commented. "We just lost another long-time customer to China where the pricing for the finished product was what we pay for the raw material. With the inflation we have being imposed on us here in the U.S., we won't ever see those customers come back."

Some chemical manufacturing companies responded that the unrest in the Middle East has led them to see slow recovery in the first quarter of 2024 depending on how the next few months unfold. Additionally, weakened oil and gas orders — despite high oil prices — is causing issues in primary metal manufacturing.

Uncertainty in the economy, as well as global supply chain issues, has pushed many businesses, including in fabricated metal product manufacturing, to slow or put a pause to new projects. Other companies in the food manufacturing space are anticipating mild growth amid workforce reductions, slow food service demand, and border control issues.

Economic uncertainty is particularly worrisome among machinery manufacturing companies, survey comments suggest. Companies reported business down as much as 20% this year amid higher shipping and goods prices.

"Six months from now is actually quite scary," a machinery manufacturer said. "The economy is uncertain, and customers cannot predict with any certainty what they see. Political pressure and the wars are now forcing customers to reevaluate their business activities and reduce their outlook. It's very uncertain."

Other businesses, including in the computer and electronic product manufacturing space, said growth could resume by the middle of 2024 provided the economy remains stable. Uncertainty of demand, though, has hurt activity at textile product mills and printing facilities, according to the survey.

Many economists believe a recession could hit the US economy as soon as early 2024. A recession is expected to hurt the economy within the next nine months, said Raymond James' chief investment officer Larry Adam in a recent note. A Bloomberg model from early October showed a higher-than-50% chance a recession could begin this year. And Harley Bassman, the managing partner of Simplify Asset Management, said a recession will pummel stocks and house prices next year.

"I'm still of the belief that there's been a lag with this tightening. I do think over the next two to four quarters, the impact of that tightening will be more evident and will create slowdowns in some areas," said David Solomon, CEO of Goldman Sachs. "There has been an escalation of geopolitical stresses around the globe — the war in Ukraine, ongoing tensions with China and now the conflict in the Middle East. Overall levels of risk are more elevated than we've seen in quite some time."

This all comes amid strong consumer spending and a still-growing economy, as real GDP measured 4.9% in the third quarter. Even with a stable jobs market, many businesses are still pessimistic about how the next few months will unfold.